NY Times Op-Ed, May 30 2014
Capitalism Eating Its Children
by Roger Cohen
LONDON — Guildhall at the heart of the City can be a lulling sort of
place after a long day. The statuary and vaulted timber ceiling of the
medieval great hall lead the eye to wander and the mind to muse on
Britain’s strangest quirk — its centuries of continuity. Grace is said,
claret is served, glasses clink and dreaminess sets in. A keynote speech
from a central banker is all that is required to complete the soporific
effect.
Or so one would think, until Mark Carney, the Canadian governor of the
Bank of England, lays into unfettered capitalism. “Just as any
revolution eats its children,” he says, “unchecked market fundamentalism
can devour the social capital essential for the long-term dynamism of
capitalism itself.”
All ideologies, he continues, are prone to extremes. Belief in the power
of the market entered “the realm of faith” before the 2008 meltdown.
Market economies became market societies. They were characterized by
“light-touch regulation” and “the belief that bubbles cannot be identified.”
Carney pulls no punches. Big banks were too big to fail, operating in a
“heads-I-win-tails-you-lose bubble.” Benchmarks were rigged for personal
gain. Equity markets blatantly favored “the technologically empowered
over the retail investor.” Mistrust grew — and persists.
“Prosperity requires not just investment in economic capital, but
investment in social capital,” Carney argues, having defined social
capital as “the links, shared values and beliefs in a society which
encourage individuals not only to take responsibility for themselves and
their families but also to trust each other and work collaboratively to
support each other.”
A stirring through the hall, a focusing of gazes — Carney has the
attention of the chief executives, bankers and investors gathered here
for a conference on “Inclusive Capitalism.” His bluntness reflects the
fact that, six years after the crisis, the core problem has not gone
away: The deep unease and anger in developed countries about the ways
globalization and technology magnify returns for the super-rich,
operating in a world of low taxation and lax regulation where short-term
gain becomes a guiding principle, even as societies become more unequal,
offering diminished opportunities to the young, less community and a
growing sense of unfairness.
Anyone seeking the source of the anger behind populist movements in
Europe and the United States (and the Piketty fever) need look no
further than this. Anti-immigration, anti-Europe movements won in
European elections because people feel cheated, worried about their
children. As Bill Clinton noted a couple of hours before Carney’s
speech, the first reaction of human beings who feel “insecure and under
stress” is the urge to “hang with our own kind.” And the world’s
greatest challenge is defining “the terms of our interdependence.”
There is still a tendency to think politicians must do this work of
definition. But in Nobody’s World, driven by social media and global
corporations, corporate leaders have more power to change things than
elected officials. If short-termism prevails and the importance of
social capital and community is dismissed, then anger will rise.
Companies are not well served by boards that are too often, in the words
of one participant, “male, stale and pale.”
Carney lays out the extent of the problem: “40 percent of recent
graduates in U.S. are underemployed and youth unemployment is around 50
percent in the worst affected countries in the euro area.”
His prescription: End through strict regulation and resilience tests the
scandal of too-big-to-fail, where “bankers made enormous sums” and
“taxpayers picked up the tab for their failures.” Recreate fair and
effective markets with real transparency and make every effort — through
codes of conduct and even regulatory obligations — to instill a new
integrity among traders (even if social capital cannot be contractual).
Curtail compensation offering large bonuses for short-term returns; end
the overvaluing of the present and the discounting of the future; ensure
that “where problems of performance or risk management are pervasive,”
bonuses are adjusted “for whole groups of employees.”
Above all, understand that, “The answers start from recognizing that
financial capitalism is not an end in itself, but a means to promote
investment, innovation, growth and prosperity. Banking is fundamentally
about intermediation — connecting borrowers and savers in the real
economy. In the run-up to the crisis, banking became about banks not
businesses; transactions not relations; counterparties not clients.”
In other words, human beings matter. An age that has seen emergence from
poverty on a massive scale in the developing world has been accompanied
by the spread of a new poverty (of life and of expectations) in much of
the developed world. Global convergence has occurred alongside internal
divergence. Interdependence is a reality, but the way it works is
skewed. Clinton noted that ants, bees, termites and humans have all
survived through an unusual shared characteristic: They are cooperative
forms of life. But it is precisely the loss at all levels of community,
of social capital, that most threatens the world’s stability and future
prosperity.